Why Nations Fail: The Origins of Power, Prosperity, and Poverty

Book Thesis: "The reason that Nogales, Arizona, is much richer than Nogales, Sonora, is simple; it is because of the very different institutions on the two sides of the border, which create very different incentives for the inhabitants of Nogales, Arizona, versus Nogales, Sonora. The United States is also far richer today than either Mexico or Peru because of the way its institutions, both economic and political, shape the incentives of businesses, individuals, and politicians. Each society functions with a set of economic and political rules created and enforced by the state and the citizens collectively. Economic institutions shape economic incentives: the incentives to become educated, to save and invest, to innovate and adopt new technologies, and so on. It is the political process that determines what economic institutions people live under, and it is the political institutions that determine how this process works."

"World inequality, however, cannot be explained by climate or diseases, or any version of the geography hypothesis. Just think of Nogales. What separates the two parts is not climate, geography, or disease environment, but the U.S.-Mexico border. If the geography hypothesis cannot explain differences between the north and south of Nogales, or North and South Korea, or those between East and West Germany before the fall of the Berlin Wall, could it still be a useful theory for explaining differences between North and South America? Between Europe and Africa? Simply, no."

On China: "The reasoning of the Ming and Qing states for opposing international trade is by now familiar: the fear of creative destruction. The leaders’ primary aim was political stability. International trade was potentially destabilizing as merchants were enriched and emboldened, as they were in England during the era of Atlantic expansion. This was not just what the rulers believed during the Ming and Qing dynasties, but also the attitude of the rulers of the Song dynasty, even if they were willing to sponsor technological innovations and permit greater commercial freedom, provided that this was under their control. Things got worse under the Ming and Qing dynasties as the control of the state on economic activity tightened and overseas trade was banned. There were certainly markets and trade in Ming and Qing China, and the government taxed the domestic economy quite lightly. However, it did little to support innovation, and it exchanged the development of mercantile or industrial prosperity for political stability. The consequence of all this absolutist control of the economy was predictable: the Chinese economy was stagnant throughout the nineteenth and early twentieth centuries while other economies were industrializing. By the time Mao set up his communist regime in 1949, China had become one of the poorest countries in the world."

Jonathan Nylander © 2020